No rule that a breaching fiduciary employee must, in all circumstances, be denied compensation in respect of the period of wrongdoing

Mady v. Rossetto, 2012 ONCA 31 holds that a breach of fiduciary duty does not, in itself, disentitle a fiduciary to payment for employment income including bonuses:

(2)       General principles governing fiduciary relief

[18]         Fiduciary relief is equitable in nature.  The remedies for breach of fiduciary duty are discretionary.  They are "dependent on all the facts before the court, and designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships": McBride, at para. 30.

[19]         Fiduciary relief is aimed at two goals: restitution and deterrence. Restitution is aimed at returning a beneficiary to the position he would have been in but for the fiduciary's breach. The goal of deterrence, or as it is sometimes referred to, the prophylactic purpose, is to prevent fiduciaries from benefitting from their wrongdoing and maintain the integrity of the fiduciary relationship. A remedy for breach of fiduciary duty can be aimed at one or both of these purposes.  The role each one plays is a function of the particular facts of the case: see for example Hodgkinson v. Simms; 3464920 Canada Inc. v. Strothers, 2007 SCC 24, [2007] 2 S.C.R. 177.  

[20]         Deterrence is of particular importance where the beneficiary suffers no identifiable loss. Such was the case in 3464920 Canada Inc. v. Strothers. In Strothers, disgorgement of profits gained through a breach of fiduciary duty was ordered not for the purpose of making the beneficiary whole; but rather, to ensure that the fiduciary did not benefit from his wrongdoing, thereby deterring fiduciary faithlessness, and achieving the prophylactic goal.

(3)              The jurisprudence does not establish an overriding principle barring compensation for errant fiduciaries during the period of wrongdoing

[21]         The effect of the appeal judge's reasoning, and consequently her error, was to elevate the fact-specific result in McBride to an absolute principle disentitling faithless fiduciaries to compensation in the form of bonuses for the period of their wrongdoing.

[22]         The cases on which the appeal judge and Mady relied do not establish that a fiduciary employee must, in all circumstances, be denied compensation in respect of the period of his wrongdoing. Rather than establishing an absolute rule, the jurisprudence affirms the well-accepted principle that equitable relief is discretionary and fact specific. The question of entitlement to bonus compensation is therefore fluid and must be determined by reference to the circumstances of the particular case, having regard to the general principles governing fiduciary relief.
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[30]           The fact that the relationship at issue in the present case is one of employer and employee also distinguishes it from McBride, where Abella J.A. expressly recognized that the relationship at issue was one of principal and agent: at para. 26. Citing this court's decision in William R. Barnes Co. v. Mackenzie (1974), 2 O.R. (2d) 659, Mark Ellis in Fiduciary Duties in Canada, loose-leaf (consulted on December 16, 2011) (Toronto: Carswell, 1993), ch. 16 at 16.15 recognizes the distinction between principal-agent and employer-employee relationships and describes the entitlement to compensation in the employment context. He writes:

It is well accepted that a principal will not be required to pay his agent a commission for transactions that are in breach of fiduciary duty.  However, an employer is not free to withhold payment of wages due for past performance, even where the past performance may have involved a time when the employee was acting in breach of his fiduciary duty.